The Federal Reserve is a privately-operated commercial bank.
Recall Application 2, “Economic Equality May Sustain Economic Growth,” to answer
the following questions:
According to the Application, intangible capital measurements is based on expenditures
on research and development, marketing, design and customer support.
Under GATT’s “Most Favored Nation” provision countries can reduce tariffs only for
their allies.
Recall Application 2, “The Value of an Annuity,” to answer the following questions:
If you expect to live forever, you should always take an annuity over any one-time lump
sum payment.
If potential output exceeds actual output, the aggregate demand curve shifts downward
over time.
According to the rule of 70, if a variable grows at x% per year, then that variable will
double in approximately 70/(1-x) years.
Topics regarding why an economy is in a recession is in the realm of macroeconomics,
while topics concerning long term economic growth is not.
If the U.S. government wants to increase the price of the dollar relative to the euro, it
could buy euros with dollars in the foreign exchange market.
All growth theory today is “new growth theory” because it considers a broad framework
that includes technological progress.
Figure 4.7 If demand increases in Figure 4.7, then the equilibrium:
A) price and quantity rise.
B) price rises and quantity falls.
C) price falls and quantity rises.
D) price and quantity fall.
If a one-year bond is purchased for $400 and the interest rate is 8 percent, what will it
pay in one year?
A) $48
B) $368
C) $400
D) $432
Recall the Application about the incentives to buy hybrid vehicles to answer the
following question(s).
In the Application, which of the following decreased the incentive to buy hybrid
vehicles?
A) Purchases of hybrid vehicles qualified for a $3400 subsidy from the federal
government.
B) Oil prices increased.
C) Hybrid vehicles were more expensive than regular vehicles.
D) Hybrid vehicles had lower emissions than the non-hybrid vehicles.
Recall the Application about the decrease in the price of wool in the 1990s to
answer the following question(s). In the 1990s, the world price of wool decreased
by about 30 percent and prices have remained relatively low since then. In 2012,
an organization in New Zealand proposed that sheep shearing be added to the
Commonwealth Games and the Olympics as a spectator sport in an effort to
increase the awareness and the demand for wool. Recall the Application. As the
world price of wool decreased, the quantity of wool supplied by individual ranchers
would ________, and the quantity supplied in the whole market would ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
In 2011 federal spending was about:
A) $2.7 trillion.
B) $3.59 trillion.
C) $4.2 trillion.
D) $2.9 trillion.
One benefit of flexible exchange rates is that flexible exchange rates are:
A) very volatile.
B) making international transactions easier and cheaper.
C) under the full control of the government.
D) changing as the price levels and interest rates between countries change.
The largest category of discretionary spending is/are:
A) defense spending.
B) non-defense spending.
C) net interest.
D) entitlements and mandatory spending.
The multiplier that arises from equal increases in government spending and taxes is
called the
A) simple multiplier.
B) tax multiplier.
C) balanced budget multiplier.
D) government spending multiplier.
Recall Application 1, “Don’t Forget the Costs of Time and Invested Funds,” to
answer the following questions.
According to the Application, if the interest rate rises, then the opportunity costs of
running a business:
A) rises.
B) falls.
C) is unchanged.
D) cannot be determined with the information given.
The marginal propensity to import is:
A) positive because consumers will import more goods and services as income rises.
B) positive because consumers will export more goods and services as income rises.
C) positive because consumers will import less goods and services as income rises.
D) positive because firms will produce more goods and services as income rises.
Suppose that a market for a product is in equilibrium at a price of $3 per unit. At any
price below $3 per unit
A) there will be an excess demand for the product.
B) there will be an excess supply of the product.
C) the quantity demanded of the product will be less than the quantity supplied of that
product.
D) there will be a surplus of that product.
Table 11.1
Refer to Table 11.1. What is the value of the marginal propensity to save?
A) 0.15
B) 0.25
C) 0.75
D) 0.9
The level of consumption in the economy when the level of income is zero is called:
A) autonomous consumption.
B) the consumption function.
C) independent income.
D) the marginal propensity to consume.
The Great Depression was made more severe because
A) the Federal Reserve increased the money supply after the stock market crashed.
B) depositors left their money in banks instead of increasing spending, which would
have increased GDP.
C) depositors made runs on banks, thereby destroying the banking system in large parts
of the nation.
D) the government lowered tariffs against imported goods.
Nominal interest rates are the
A) interest rates quoted in the market minus the inflation rate.
B) interest rates quoted in the market plus the expected inflation rate.
C) interest rates quoted in the market.
D) real interest rates less the inflation rate.
Of the economists listed below, who is not considered a “classical” economist?
A) John Maynard Keynes
B) Jean-Baptiste Say
C) David Ricardo
D) Thomas Malthus
The ability of one person or nation to produce a good at a lower opportunity cost than
another is called a(n):
A) market advantage.
B) comparative advantage.
C) absolute advantage.
D) specialization advantage.
Recall Application 3, “Increasing Health-Care Expenditures and Crowding Out,” to
answer the following questions:
According to the application, as individuals increase spending on health-care:
A) investment spending decreases causing a decline in living standards in the long run.
B) government spending decreases causing a decline in living standards in the long run.
C) government spending increases further causing a rise in living standards in the long
run.
D) investment spending increases causing a rise in living standards in the long run.
After experiencing its first budget surplus in 30 years in 1998, for how many
consecutive years following that did the budget remain in a surplus state?
A) 1
B) 2
C) 3
D) 4
Briefly discuss how recessions can occur in a Keynesian model.
Define GDP.
If two people both produce goods and each has a comparative advantage, and they
exchange goods with each other for mutual benefit, it is called a ________.
Briefly explain under what condition, if any, net investment can be negative. If so,
explain what this implies about the capital stock.
Explain how an excess demand would lead to an increase in prices in an unregulated
market.
Is money neutral in the short run? Explain.